Reliance Industries Ltd vs Commissioner Of Central Excise & ...

(Arising out of Order-in-Appeal No. YDB/56/LTU/MUM/2012 dated 22.5.2012 passed by Commissioner of Central Excise & Service Tax (Appeals) (LTU), Mumbai)

For approval and signature:

Honble Mr. Anil Choudhary, Member (Judicial)

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1. Whether Press Reporters may be allowed to see : No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?

2. Whether it should be released under Rule 27 of the :

CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

3. Whether Their Lordships wish to see the fair copy : Seen of the Order?

4. Whether Order is to be circulated to the Departmental : Yes authorities?

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Reliance Industries Ltd. Appellant Vs. Commissioner of Central Excise & Service Tax (LTU), Respondent Mumbai

Appearance:

Shri J.C. Patel, Advocate, with Ms. Shilpa Balani, Advocate, for appellant Shri S. Dewalwar, Additional Commissioner (AR), for respondent

CORAM:

Honble Mr. Anil Choudhary, Member (Judicial)

Date of Hearing: 2.1.2015 Date of Decision: 2.1.2015

ORDER NO

The appellant, Reliance Industries Ltd., is a manufacturer of polyester yarn (POY, PTA, NP, benzene) and is registered with the Central Excise. The appellant availed cenvat credit of duty paid on inputs, capital goods and input services. Show cause notice dated 6.6.2011 was issued for the period July 2010 to December 2010 on the observation that the appellant was availing and utilizing cenvat credit on input services particularly insurance auxiliary services - general insurance. It further appeared to the Revenue that the appellant has availed and utilized cenvat credit of service tax paid on premium paid to insurance companies for group insurance/insurance of their employees including retired employees/mediclaim under category of insurance auxiliary services-general insurance. Accordingly, it was proposed to disallow the cenvat credit availed in respect of the insurance premium so paid and it appeared to the department that the premium paid by the appellant in respect of group insurance/insurance of their employees including retired employees/mediclaim is not covered under the definition of input services and it has no direct nexus with the manufacture of the final products and the clearances and storage of the final products.

The appellant contested the show cause notice and made submissions wherein, among others, they submitted that the premium paid to insurance companies was group insurance and mediclaim which is nothing but component of the wages. These are part of the costing of the final product in terms of CAS-4. As per CAS-4, all non-monetary benefits extended to factory employees are regarded either as direct wages and salaries or as works overhead or administrative overhead, related to production activity and form part of cost of manufacture of final product. Once the expenditure in dispute forms part of the final product, it has to be presumed that the expenses are incurred in relation to such services in relation to manufacture of final product, as has been observed by the Honble Bombay High Court in the case of Coca Cola India Pvt. Ltd. vs. CCE, Pune-III reported in 2009 (15) STR 657 (Bom.). The Honble High Court dealing with advertisement cost, held that credit is availed on the tax paid on the input services, which is the advertisement and not on the contents of the advertisement. Thus it is not necessary that the contents of the advertisement must be that of the final product manufactured by the person advertising, so long as the manufacturer can demonstrate that the advertisement services availed have an effect of or impact on the manufacture of the final product.

Therefore, the manufacturer is entitled to avail the credit of the service tax paid by him. Once the cost incurred by the service has to be added to the cost, and is so assessed, it is a recognition by Revenue of the advertisement services having a connection with the manufacture of the final product. This test will also apply in the case of sales promotion. The appellant further relies on the ruling of this Tribunal in the case of Millipore India Ltd. vs. CCE, Bangalore-II reported in 2009 (236) ELT 145 (Tri.-Bang), wherein this Tribunal held that cenvat credit of service tax on input service, i.e. medical and personal accident policy, group personal accident policy, insurance etc., and took notice of the fact that CAS-4 Standards requiring all elements of costs to be included in the costing of final products, such elements are elaborated in the Standards. Further, in para 5.2 of the Standards, it is provided that direct wages and salaries shall include house rent allowance, overtime and incentive payments made to employees directly engaged in the manufacturing activities, wherein provision for retirement benefits such as gratuity and superannuation is also provided.

This Tribunal also held that CAS-4 has considered all the services such as medical benefit, subsidized food, education allowance etc., to form part of the cost of the final products, and accordingly held that these services which have been received were rendered only in relation to manufacture of final products. Further, it was noted that the definition of input service is very broad. The said ruling was challenged by the Revenue before the Honble Karnataka High Court and the Honble High Court vide its order dated 11.4.2011 reported at 2012 (26) STR 514 (Kar.), observed that it is clear in view of CAS-4 that those factors have to be taken into consideration while fixing the cost of the final products. If service tax is paid in respect of any of those services which forms part of the costs of the final products, certainly the assessee would be entitled to the cenvat credit of the tax so paid. The Honble High Court also noticed that the definition of input service is too broad and the same is inclusive. It is further held that what is contained in the definition is only illustrative in nature.

Activities relating to business and any services rendered in connection therewith would form part of the input services. Accordingly, the appellant prays for allowing the appeal.

2. The learned AR relies on the impugned order. The learned AR further submitted that in the case of Millipore India (supra), insurance premium for retired employees was not an issue. He further points out from the ruling in the case of Coca Cola (supra), at para 27, that the use of the word activities in the phrase activities relating to business further signifies the wide import of the phrase activities relating to business. The Rule making authority has not employed any qualifying words before the word activities, like main activities or essential activities etc. Therefore, it must follow that all and any activity relating to business falls within the definition of input service provided there is a relation between the manufacturer of concentrate and the activity. Therefore, the phrase activities relating to business are words of wide import. The learned AR further stresses that there has to be a nexus between the expenditure and the manufacture. The element of nexus is absent with respect to insurance premium paid for securing the life/health of the retired employee.

3. Having considered the rival submissions, I agree with the ruling of the Honble Karnataka High Court in the case of Millipore India Ltd. (supra), wherein, after examining the CAS-4 Standards, the Honble High Court accepted that all factors have to be taken into consideration while fixing the cost of the final products. The Honble High Court further observed that the definition of input services is too broad. Further it is not disputed in the facts of the case that the premium so paid in the present appeal has formed part of the cost of excisable goods on which excise duty has been paid on removal. Therefore, the appellant is entitled to avail cenvat credit for the insurance premium paid in respect of group insurance/insurance of employees including retired employees/mediclaim which are covered under the definition of input services and have a nexus. Thus the appeal is allowed with consequential benefits.

(Dictated in Court)

(Anil Choudhary) Member (Judicial)

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